The US dollar is mixed against a basket of currencies ahead of the FOMC meeting today. It is widely expected that the Fed Reserve will keep benchmark rates at 0 to 0.25%. On the data front, a report from the Commerce Department showed the current US account for the fourth quarter narrowed more than expected to $132.8 billion as US imports plunged more than exports. Data from the Labor Department showed the Consumer Price Index rose 0.4% in February calming fears of deflation for now.
In an effort to boost the economy, a handful of central banks have taken steps towards quantitative easing or injecting money into financial markets in an effort to ease some of the credit crunch. The Fed is in the middle of rolling out two significant programs to start credit flowing into the strained financial markets. One is aimed at auto, student, credit card and small business loans. This program is set to launch into action this month, though some procedural snafus have marred its launch. The second program focuses on mortgage-related debt.
The euro strengthened against the dollar as risk sentiment improves. Many investors have begun shying away from the “safe-haven” dollar in the wake of stock market rallies and financial institutions in the US beginning to report positive outlooks. European Central Bank President Jean-Claude Trichet said zero interest rates have disadvantages for the euro area and 2009 would be a very difficult year for the Euro Zone economy. However, low inflation would help support shopper’s purchasing power and ECB is still considering other actions to boost the economy.
The British pound weakened against the dollar and euro after bleak employment data and the release of Bank of England’s minutes from this month’s meeting. Data showed the number of people applying for unemployment last month was 138,400, the largest rise on record, as Britain registered unemployment over 2 million for the first time since 1997. The grim unemployment data points to a deepening recession in the UK and sparked concern that record government bond issuance will inflate the money supply. Minutes from the BoE’s policy meeting this month showed policymakers were behind cutting rates to a record low of 0.5% and to continue pushing their efforts for quantitative easing.
The Japanese yen strengthened against the dollar as investors’ appetite for risk improved. In an effort to help cushion the worst recession since World War II, the Bank of Japan said it would increase its purchases of government bonds from banks by nearly a third, pumping cash into their economy. This second expansion of debt buying since December signaled the bank may be edging towards quantitative easing.
The Canadian dollar is stronger against the US dollar on the tail of US stock markets’ recent rally and oil prices. Overnight, oil traded above $49 a barrel, but fell from those highs to trade around $48 a barrel.
The Australian and New Zealand dollars held steady against the US dollar as investors await the Federal Reserve’s policy announcement later today. Overnight, both the Aussie and the kiwi fell from their week-long rally as Asian share markets ran out of steam.
10-Year Treasury Note Yield: 2.953%
Dow Jones Industrial Average: 7,278.70 – 116.77